A Bit More About 4% Rates

One of the questions we get most often lately is: "We've heard Obama and others talking about doing something to cause rates to go down to 4%. Do you think this is going to happen and if so when and will it help me?"
Based on what's been said in the media, the question is completely valid; and we always welcome questions of any type. In this case, however, our only answer can be: it hasn't happened yet. It would take some fairly drastic action for this to occur. Of course in this current ecopolitical environment, drastic is no longer unusual. As far as we can tell, the government would have to subsidize the lending to the point of being the actual lender. It does not appear that the current mortgage backed securities environment will support rates this low.
One has to keep in mind that a mortgage backed security (which is the investment vehicle most mortgages end up becoming - including yours), is, in fact, an investment vehicle. Folks such as yourselves, and large institutional investors of course, purchase them in order to receive a certain expected fixed rate of return. And just like any other investment, the return must reasonable justify the risk.
Think of it like this: would you consider a mortgage to be a safe investment right now, considering the number of foreclosures and the rate at which values are dropping? Especially when you consider the number of folks who purchased homes at the peak of the market and didn't have to prove their income. Scary. ---- many would not. And as a result, they will expect a certain return on their dollars invested. Mortgage rates in the 4% range are not going to result in a high enough return unless things change in a hurry and investors feel better about these securities.
So, back to the need for FULL government intervention if rates are to fall to 4%. There have been many proposals put forward during the Stimulus Package negotiations; and one of those, proposed by Sen. John Thune of South Dakota was designed to reduce mortgage rates to as low as 4 percent for millions of homeowners, but was defeated on a vote of 62-35 - apparently a party line vote. (Click on the title above to read full related article).
This doesn't seem to indicate to us that they are in a hurry to lower rates to 4%, no matter what they are saying in front of the cameras. In the meantime, we'll be keeping an eye on things and letting you know the latest developments that could impact you - including any news about 4% interest rates. And please, don't hesitate to contact us with your questions.